By Tiernan Ray

Following a report this afternoon by Intel (INTC) of better-than-expected Q4 revenue, but a penny-per-share miss on EPS, CEO Brian Krzanich and teamed hosted a conference call with analysts to discuss the results and outlook.

Shares of Intel have deepened their decline in the after-market, down $1.18, or almost 5%, at $25.36.

Krzanich called the quarter’s results a “solid finish to the year,” and said the company was in a “better position” after spending last year “building a foundation.” He also said the “rate of innovation has improved” inside Intel.

CFO Stacy Smith said the outlook for gross margin to decline this quarter by about three percentage points was a result of higher startup costs for the company’s “Broadwell” processors for the desktop, which are entering the newer 14-nanometer process technology.

“Q1 will be the high point for quarterly expenses, and that will be coming down quarter by quarter,” said Smith. “It’s going to be just shifting on projects and bringing down employment over the course of 2014.”

For the year, Smith reiterated a view that “data center group” revenue, comprising Intel’s sales of chips into servers and networking, would rise “low double-digits” while PC client revenue will be “down in mid-single-digits” on a percentage basis.

Startup costs are expected to decline as tablet chips ramp up in volume, he added. $18.6 billion for the year, and capital spending of $11 billion, both approximately flat with last year.

The first question came from Mark Lipacis of Jefferies & Co., who said investors generally think Intel is at a disadvantage relative to contract manufacturer Taiwan Semiconductor Manufacturing (TSM) with respect to the basic cost of silicon wafers.

“What really counts in all of this is transistor cost,” replied Krzanich. “Wafer cost is one segment of that. We are confident our level of scaling and our internal wafer cost are such that we have a leadership position in transistor cost.”

Analysts asked about the 8% growth in revenue from Intel’s data center group, which was lower than expected, Smith replied “We had a pretty robust growth rate in Q3,” said Smith.

“As we entered Q4, we saw we had more inventory out there, which had to be burned off. We saw a tapering off in order patterns at certain customers across certain segments. We think that was driven by the government shutdown and uncertainty.”

When an individual asked if Intel is not seeing the expected recovery in enterprise servers, Smith said there was some impact from “virtualization” technology having run its course, thereby not boosting sales as it did a few years back. But more important was that an overall recovery in enterprise IT was taking longer than expected.

We’ll watch it over the first quarter. I think the headline here is that the first half of the year we saw an enterprise market that was declining. When we got into did back half of the year it was growing. It was just growing a little less fast than we thought and the recovery was a little less fast than we thought. My expectation is we’ll see that segment kind of pop back to the normal rate. I also think

Another analyst asked whether cloud computing was robbing dollars from enterprise shops, and if so, would Intel make up the money by simply selling more into the cloud. Smith answered that yes, in fact, dollars in the cloud seemed to be replacing dollars in enterprise server chips “pretty close to one to one,” meaning, a dollar gained in the cloud for every dollar lost in enterprise.

Bernstein‘s Stacy Rasgon asked whether the company shouldn’t have taken down its forecast for total revenue for the year to be roughly flat” given that it had taken down its forecast for the data center group — the year outlook for “low-double-digit growth” is at the lower end of a forecast offered during the analyst day back in November for “low to mid-teen revenue growth” in data center.

Smith replied “I think you’re assuming a level of precision that is not appropriate for something that’s playing out over the next 12 to 18 months.”

J.P. Morgan‘s Christopher Danely asked if the company would consider retracting promised discounts to tablet makers this year if it looks as if the company won’t reach its goal for selling 40 million units this year. “Would you consider canning that strategy?” he asked, referring to a stated plan for “contra revenue dollars.”

Krzanich remarked that the structure of the cost reduction is on a per-unit basis, and so “if the volume didn’t show up “If it didn’t, it’s on a per-unit basis and so the spending on that contra would be reduced equivalently.”

One analyst asked why the outlook for this quarter’s revenue wasn’t higher than the forecast for revenue to be down 7.5%, given that the company is now shipping “Bay Trail” chips that should boost sales of tablet computers. Krzanich replied that it will take until Q2 to see the benefits of tablet-chip sales, especially given that Intel is waiting on Android software from Google (GOOG) that supports 64-bit computing in Bay Trail, versus having previously supported only Microsoft’s (MSFT) Windows :

Most of the Bay Trail Android tablets really start showing up more in Q2 than in Q1 and that’s, again, purely — remember, we made a shift. Our original program for Bay Trail was all Windows. As we came in through the mid-point of the year, we said left’s shift and make it Windows and Android and so our OEM partners as well are targeting more towards Q2. It’s just when do you go and start putting back in that back-to-school event which is the next seasonal place where upsides usually occur.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.